Fitch cuts Roche rating on Genentech deal

By IBT Staff Reporter03/13/09 AT 10:17 AM

LONDON - Fitch Ratings on Friday cut its credit rating and outlook on Roche Holding citing the company's increased debt after a deal was reached for it to buy the 44 percent it did not already own in Genentech.

Fitch cut its rating on Roche by one notch to AA- and its outlook to negative from stable. The transaction will significantly reduce the group's debt protection measures and any improvements in its credit profile will take some time, said Britta Holt, a director in Fitch's retail, consumer and healthcare team.

The negative outlook, which means that a downgrade is more likely over the next 18 to 24 months, reflects the risk of a slower than expected deleveraging process due to integration problems, she added. Roche raised a record $30 billion in the U.S. and European corporate bond markets last month to help finance its bid for Genentech, which was secured on Thursday after the U.S. company agreed to a $46.8 billion offer.

The Genentech acquisition will provide Roche with economies of scale in terms of research and development and marketing and an opportunity to simplify the structure of the combined entity, Fitch added.

The downgrade will not invoke the step-up clause, or higher interest payments, contained in the company's recent bond issue documentation, IFR reported. That only comes into effect if Roche's rating falls below Single A, added IFR Markets, a Thomson Reuters online news and market analysis service.